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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Kape Technologies Plc | LSE:KAPE | London | Ordinary Share | IM00BQ8NYV14 | ORD USD0.0001 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 285.00 | 279.00 | 285.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Jul 2022 to Jul 2024
TIDMKAPE
RNS Number : 0221Z
Kape Technologies PLC
12 September 2022
12 September 2022
Kape Technologies plc
("Kape", the "Company", or the "Group")
HALF YEAR RESULTS FOR THE SIX MONTHSED 30 JUNE 2022
Strong H1 performance, exceptional integration progress, FY22 guidance reiterated
Kape Technologies plc (AIM: KAPE), the digital security and privacy software business, announces its unaudited results for the six months ended 30 June 2022.
Financial highlights
-- Strong performance across H1 2022, underpinned by profitable growth and integration synergies
o Revenues increased by 216.6% to $30 2.4 million (H1 2021: $95.5 million), a 19% increase on a pro forma organic basis
o Strong growth in recurring revenues to $268.0 million, an increase of 353.5% (H1 2021: $59.1 million)
o Proforma Adjusted EBITDA(1, 2) up 209.7% to $88.9 million (H1 2021: $28.7 million), an increase of 17% on a pro forma basis, with Proforma Adjusted EBITDA margin at 29.4% (H1 2021: 30.0%)
o Operating profit up 333.8% to $59.0 million (H1 2021: $13.6 million)
o Increase of 278.9% in Diluted Adjusted Earnings Per Share(3) to 34.1 cents (H1 2021: 9.0 cents)
o Growing cash generation; adjusted cash flow from operations increased by 517% to $90.1 million (H1 2021: $14.6 million). Reported cash flow from operations increased by 596.8% to $87.8 million (H1 2021: $12.6 million)
Operational highlights
-- Ongoing demand for privacy and security products continues to drive both new customer growth and upsell opportunities from existing subscribers
o Kape's privacy segment revenues grew 19% in H1 2022 on a pro forma organic basis, with the security division growing 15.7%
-- Exceptional progress integrating ExpressVPN
o Highly earnings accretive acquisition which significantly scales the Group
o Created unified teams across the privacy business, on track to realise $9 million in synergies in 2022
-- Kape's content division, based on the Webselenese acquisition, delivering growth and support for the business:
o Content division generated significant organic growth, with revenues up 25% on a pro forma basis
o Integral to Kape's strategic roadmap, augmenting go-to-market capabilities and reducing Customer Acquisition Costs ("CAC")
-- Expanded service offerings across key brands
o ExpressVPN reinforced market-leading position with multiple product launch
o CyberGhost and other key brands rolled out new features and product updates
Outlook
-- Kape expects to generate revenues for the year ended 31 December 2022 of between $610-624 million and pro forma Adjusted EBITDA of between $166-172 million for the year ending 31 December 2022.
Post period-end - Option to prepay deferred consideration
-- Kape has signed an option agreement (the "Prepayment Agreement") which could provide substantial savings for the Company in the event that it pays early the deferred consideration for the acquisition of ExpressVPN. Under the terms of that acquisition, completed on 15 December 2021, Kape is due to pay to the sellers deferred cash consideration of US$172.5 million on each of the first and second anniversaries of completion.
-- The Prepayment agreement signed with Peter Burchhardt and Dan Pomerantz, the co-founders of ExpressVPN, that Kape may (but is not obliged to) elect to prepay on or before 15 December 2022, at a discount to its headline value, all or any of the deferred cash consideration. Pre-payments will attract a discount (calculated on an annualised basis from the date of prepayment to the date on which payment is otherwise due under the acquisition agreement) of 8.939%, provided that on or before 15 December 2022 Kape both prepays all the deferred consideration (after application of any applicable discount) and enters a new or revised bank borrowing facility of not less than US$345 million. If either of such conditions is not met, the annualised discount rate applicable to any prepayments made falls to 6.939% and only prepayments of up to US$172.5 million will benefit from a discount.
-- An additional saving arising from any prepayment is a reduction in the commitment fee under the Deferred Consideration Facility agreed to be made available to the Company by TS Next Level Investments Limited at the time of the acquisition, which accrues at 3.50% per annum.
-- The co-founders of ExpressVPN are considered related parties of Kape for the purposes of the AIM Rules for Companies. The entering into of the Prepayment Agreement by the Company is therefore a related party transaction under Rule 13 of the AIM Rules for Companies. The independent directors of Kape (in this instance being Don Elgie, Ido Erlichman, Oded Baskind, David Cotterell, Pierre Lallia and Martin Blair) consider, having consulted with the Company's nominated adviser, Shore Capital and Corporate Limited, that the terms of the Prepayment Agreement are fair and reasonable insofar as the Company's shareholders are concerned.
-- The Company is in the early stages of considering with its syndicate of lending banks the possibility of materially upsizing the Group's debt facilities in order to provide the Group with greater flexibility in its capital resources to pursue attractive future value-creation opportunities should they arise.
Ido Erlichman, Chief Executive Officer of Kape, commented:
"Our excellent operational and financial progress across H1 2022 has underpinned a period of record profitable growth for Kape, reinforcing our widely recognised status as a leading player in the global digital privacy and security arena.
We are experiencing growing demand across our full range of product suite, reinforced by our premium service offering. This is testament to the efforts of the entire Kape team who have worked tirelessly to deliver cutting-edge products to market and drive innovation.
From the successful integration of ExpressVPN to expanding our burgeoning product stack, we believe we are now ideally placed to capture the global demand from individuals who want to grow their control over their digital lives."
Analyst and institutional investor webcast
A webcast presentation for analysts and institutional investors will be held on Monday, 12 September 2022 at 2.00 p.m. BST (9.00 a.m. EST). To register for this event and join the stream on the day, please click the following link:
https://stream.brrmedia.co.uk/broadcast/6305d685da906b287e99d178
Retail investor webcast
A webcast for retail investors will be held on Tuesday, 13 September 2022 at 2.45 p.m. BST (9.45 a.m. EST). The presentation will be hosted on the Investor Meet Company platform. Investors can sign-up for free and add to meet Kape via:
https://www.investormeetcompany.com/kape-technologies-plc/register-investor
(1) Adjusted EBITDA is a non GAAP measure and a company specific measure which is calculated as operating profit before depreciation (including right-to-use assets amortisation), amortisation, exceptional or non-recurring costs, other operating income/(expense) and employee share-based payment charges
(2) Proforma Adjusted EBITDA is a non GAAP measure, it's the Company Adjusted EBITDA after adding back deferred contracts costs fair value accounting adjustment following ExpressVPN consolidation.
(3) Adjusted EPS is calculated from earnings per share adding back, share-based payments and non-recurring costs
Enquiries:
Kape Technologies plc via Vigo Consulting Ido Erlichman, Chief Executive Officer Oded Baskind, Chief Financial Officer Shore Capital (Nominated Adviser & Broker) +44 (0)20 7408 Toby Gibbs / Mark Percy / James Thomas 4090 Stifel Nicolaus Europe Limited (Joint Broker) Alex Price / Brad Topchik / Alain Dobkin / +44 (0) 20 7710 Richard Short 7600 Vigo Consulting (Financial Public Relations) Jeremy Garcia /Kendall Hill +44 (0)20 7390 kape@vigoconsulting.com 0237
About Kape
Kape is a leading 'privacy-first' digital security software provider to consumers. Through its range of privacy and security products, Kape focuses on protecting consumers and their personal data as they go about their daily digital lives.
Kape has c.7 million paying subscribers, supported by a team of over 1,000 people across ten locations worldwide. Kape has a proven track record of revenue and EBITDA growth, underpinned by a strong business model which leverages our digital marketing expertise.
Through its subscription-based platform, Kape has fast established a highly scalable SaaS-based operating model, geared towards capitalising on the vast global consumer digital privacy market.
www.kape.com
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Chief Executive Officer's review
Overview
The first half of 2022 was Kape's strongest period to date, in which we delivered accelerated profitable growth.
Pleasingly, the Group delivered 216.6% revenue growth with $302.4 million (H1 2021: $95.5 million) of revenue and 209.7% Pro Forma Adjusted EBITDA (1) (,2) growth with $88.9 million (H1 2021: $28.7 million), record operating cash flow of $87.8 million (H1 2021: $12.6 million) and Pro Forma Adjusted EBITDA margin of 29.4% in the period. We now have c.7 million paying customers across our products, positioning Kape as one of the leaders in the growing digital privacy and security consumer space.
Despite turbulent general market conditions, the need for privacy and security solutions for consumers continues to grow. This favourable backdrop has continued to allow Kape to expand its share of this rapidly growing market, with the Group's privacy division growing 19% on an organic pro forma basis and security division growing 15.7% in H1 2022. Significantly, Kape's digital content segment delivered a 25% increase in revenues on an organic pro forma basis, following the full integration of Webselenese and the expansion into new verticals during the period.
The expansion of our customer base to over 7 million paying customers is driven by a number of macro trends, including the growing amount of personal data online, heightened demand for digital privacy and security protection by consumers online, and a growing willingness from individuals to pay for superior services. Our user base mostly consists of 20-45 year olds, with over 45% from North America and c.30% located across Europe.
Kape provides consumers with products that enable them to enjoy the digital universe without compromising their identity or security. Not only are individuals owning a wider collection of personal digital devices, but consumers are increasingly seeking to obtain comprehensive cybersecurity coverage across their range of appliances to securely expand their digital lives, whether at home or on-the-go.
As the demand for privacy and security products continues to rise, Kape is ideally placed to strengthen its reputation as a go-to provider of expert digital privacy and security solutions, continuing our mission of safeguarding consumers worldwide from critical cyberthreats.
A key growth strategy is to continue to expand our product set, which will bring us closer to our customers by creating multiple touch points on a daily basis. We see a significant opportunity in the market to both further support our existing customer base and expand our global footprint in the near term.
Operational review
Key Performance Indicators
Kape performed strongly across its KPIs in the period, demonstrating the resilience of the Group's SaaS business model which functions as a catalyst for profitability and growth.
Hot Features
Premium
30 June 31 Dec
2022 2021
'000 '000
Subscribers (thousands) 6,949 6,573
Retention rate(3) 82% 81%
Deferred income ($'000) 161,033 155,856
H1 2022 H1 2021
$'000 $'000
Adjusted EBITDA 151,404 28,674
Proforma Deferred Contract expenses
adjustment (62,501) -
-------- -------
Proforma Adjusted EBITDA(1,2) 88,903 28,674
Cash flow from operations 87,783 12,578
Exceptional and non-recurring cash
outflow 2,305 2,014
Adjusted cash flow from operations 90,088 14,592
-------- -------
% of Adjusted EBITDA 59.5% 50.9%
-------- -------
Proforma Adjusted EBITDA 88,903 28,674
-------- -------
% of Proforma Adjusted EBITDA 101.3% 50.9%
-------- -------
Kape reached the 7.0 million subscriber milestone in the period, broadening the Group's international footprint up from 6.6 million at 2021 year-end. Pleasingly, Kape delivered a growth in both digital privacy and digital security subscribers in H1 2022.
The Group's retention rate remains high at 82% (31 December 2021: 81%), which is market-leading for a B2C SaaS-business, whilst deferred income was $161.0 million as at 30 June 2022 (31 December 2021: $155.9 million)
Integration of ExpressVPN
The acquisition of ExpressVPN in December 2021 significantly scaled the Group, increasing our penetration of the North American market, with 45% of Kape's customers now based in the region. The integration has progressed ahead of expectation, and we are now operating as a unified team. More importantly, we are delighted that ExpressVPN's founders and key members of its management team have taken up operational positions across the Group.
We are on track to realise in the region of c. $9 million in operational synergies by the end of the year. We have completed the customer support integration and we now have a unified customer service arm that services all of our brands, providing 24/7 online support as well as multi language support. In addition, in the privacy division, we have now integrated the teams to form one R&D platform, elevating Kape's existing and highly regarded R&D capabilities. We have also unified the marketing teams in the privacy divisions and are now cross collaborating with our content division. We anticipate that this new ability to support multiple brands will contribute to better products for our end consumers, CAC reduction and accelerated growth.
We are already seeing the benefits of leveraging our economies of scale as well as delivering ongoing infrastructure synergies. We still have some way to go to realise the $30 million annualised synergies which, we believe, we will enjoy to a full extent next year.
Digital content and digital security
The Group's digital content division revenues increased by 25% on an organic pro forma basis, supported by the strong demand from our privacy and security verticals. As a result of ongoing investment in establishing new verticals, reported margins are lower in the period, however we expect them to improve as these segments move into a more mature phase. The division operates as a standalone division whilst supporting the broader business to reduce further the average CAC and further strengthen the Group's revenue model.
This digital content platform is a highly strategic growth engine for Kape, providing unparalleled analytical insight into prevalent digital privacy and security market trends via its industry-leading review site, bringing Kape even closer to consumers.
Our digital content division now reaches over 120 million unique monthly readers in over 29 languages, enabling Kape to tailor marketing campaigns and product launches to different geographies across our brand portfolio.
Our digital security division has also experienced growth, mainly through our Intego endpoint protection where we are the premium endpoint security for Mac and have launched our PC solution last year. We launched a new malware detection engine which displays dramatic improvements to our antivirus performance and improves the way we detect and block malware. It is designed to serve customers across our product offering and can be used as an external SDK.
Product development
Kape's premium brands rolled out a number of new products in H1 2022, alongside innovative features to upgrade existing privacy and security solutions. ExpressVPN advanced its already robust VPN service by launching several new features, generating growing customer value and retention as consumers increasingly seek comprehensive protection from a fast-growing range of digital threats.
'Keys', 'Parallel Connections', and 'Threat Manager' are just a selection of new products and add-on features which we launched across H1 2022 to optimise our existing service, helping foster greater lifetime-value for Kape's ever-expanding network of customers whilst consolidating the Group's position as a premium pure-play digital security and privacy business. Concurrently, CyberGhost has secured Google Play Protect certification, with the brand's latest app now available to millions more consumers via Google Play.
Providing a premium service means we are always developing and enhancing our products. This year, we have upgraded our service quality, replacing our 1Gbps servers with new 10Gbps servers around the world, providing even faster speeds and increased reliability connections. We have seen 40-50% faster speed amongst our users, which has reduced our energy spend and cost per user.
This year we have also released our native M1 and M2 Apple applications. We are one of a handful of companies who released a native application for Apple's new M series silicon chip, which translates into superior experience, speed, and ease of use on all new Apple devices. A majority of our peer group have not adapted and require a software "translation", which reduces the user experience quality.
In line with Kape's long-term strategy for the roll out of our Privacy First Anti-Virus solution for PC, Private Internet Access customers now have access to the feature, facilitating protection from security threats by effectively safeguarding users from one point of purchase.
Outlook
Kape's strong customer traction across H1 2022, together with the expansion of our service offering and solid organic growth, has put the Group in an ideal position to continue on our current growth trajectory.
Our scalable SaaS operating model and strong financial foundations continue to facilitate additional M&A opportunities, whilst enabling the Group to focus efforts on expanding our customer footprint through product innovation and brand recognition. Our growing profitability and the sheer scale of our customer base combined with the current market conditions present a prime opportunity for Kape on the M&A front.
With dependable and affordable digital protection an ever-increasing priority for individuals worldwide, and a vast number of daily activities across business and leisure becoming digitalised, Kape is more confident than ever of our near term and long term growth prospects. We empower people to expand their digital activity; providing individuals with secure and private means to be who they want to be and do what they want to do.
Looking ahead, Kape expects to deliver on our growth targets and focus on organic growth engines as well as continue to execute on its successful in-organic strategy assessing selected M&A targets to accelerate that growth. We are well positioned to deliver on our expectations for the full year 2022, with the enlarged Group expected to generate revenues of between $610-624 million and pro forma Adjusted EBITDA of between $166-172 million for the year ended 31 December 2022.
Ido Erlichman
Chief Executive Officer
12 September 2022
(1) Adjusted EBITDA is a non GAAP measure and a company specific measure which is calculated as operating profit before depreciation (including right-to-use assets amortisation), amortisation, exceptional or non-recurring costs, other operating income/(expense) and employee share-based payment charges
(2) Proforma Adjusted EBITDA is a non GAAP measure, it's the Company Adjusted EBITDA after adding back deferred contracts costs fair value accounting adjustment following ExpressVPN consolidation.
(3) Retention rates are calculated on a six-month basis.
Chief Financial Officer's review
Overview
The Company had a strong financial performance in the first half of 2022 as revenues increased by 216.6% to $302.4 million (H1 2021: $95.5), or 19% on a proforma basis. The increase in the proforma basis revenues is a result of an increase in the Company's subscriptions base while retaining healthy retention rates. Proforma Adjusted EBITDA increased by 209.7% to $88.9 million (H1 2021: $28.7 million). Operating profit increased by 333.8% to $59.0 million (H1 2021: $13.6 million).
Adjusted cash flow from operations was $90.1 million (H1 2021: $14.6 million), which represents a cash conversion of 101.3% from the Proforma Adjusted EBITDA. The increase is a result of growing percentage of customers that are with the Company for over a year.
Segment Result
Revenue Segment result
H1 2022 H1 2021 H1 2022 H1 2021
$'000 $'000 $'000 $'000
Digital Privacy 253,510 49,552 192,193 27,674
Digital Security 21,385 18,479 7,932 6,735
Digital Content 27,501 27,471 4,529 12,097
Total 302,396 95,502 204,654 46,506
--------- --------- --------- ---------
The segment result has been calculated using revenue less costs directly attributable to that segment. Cost of sales comprises payment processing fees and infrastructure costs for the Group's privacy products. Direct sales and marketing costs are user acquisition costs.
Digital Privacy
H1 2022 H1 2021
$'000 $'000
Revenue 253,510 49,552
Cost of sales (20,687) (6,621)
Direct sales and marketing costs (40,630) (15,257)
-------- --------
Segment result 192,193 27,674
-------- --------
Segment margin (%) 75.8 55.8
-------- --------
Proforma Deferred Contract expenses
adjustment (62,501) -
-------- --------
Proforma Adjusted Segment result 129,692 27,674
-------- --------
Proforma Adjusted Segment margin
(%) 51.2 55.8
-------- --------
During the period, the Digital Privacy segment has seen continued growth with a 411.6% increase in revenue to $253.5 million (H1 2021: $49.6 million), 19% on proforma basis, and a 594.5% increase in the segment result to $192.2 million (H1 2021: $27.7 million). Proforma base revenue growth was driven by subscriber base growth of 10.4% to 6.1 million and maintaining strong healthy retention rate. Proforma Adjusted Segment result is calculated by adding the Proforma Deferred contract costs expenses adjustment related to the ExpressVPN acquisition. The decrease in proforma adjusted Segment margin is attributed to the higher cost to serve of ExpressVPN's premium product.
Digital Security
H1 2022 H1 2021
$'000 $'000
Revenue 21,385 18,479
Cost of sales (1,469) (1,279)
Direct sales and marketing
costs (11,984) (10,465)
-------- --------
Segment result 7,932 6,735
-------- --------
Segment margin (%) 37.1 36.4
During the period, revenue from the Digital Security segment continued to grow with an increase of 15.7% to $21.4 million (H1 2021: $18.5 million). The increase was driven by an 18.7% growth in revenue from Intego's Endpoint security products. In addition, revenue from the PC performance products has increased by 14.8% but with a higher margin of 27.7% (H1 2021: 24%).
Digital Content
H1 2022 H1 2021
$'000 $'000
Revenue 27,501 27,471
Cost of sales - -
Direct sales and marketing
costs (22,972) (15,374)
-------- --------
Segment result 4,529 12,097
-------- --------
Segment margin (%) 16.4 44.0
During the period, revenue from the Digital Content segment was $27.5 million and segment results were $4.5 million. On a proforma basis, excluding revenue that was generated from Kape brands, revenue for the six months ended 30 June 2022 has significantly increased by 25% compared with the first half of 2021. The segment margin decreased to 16.4%. The revenue growth has been driven by revenue generated from new verticals introduced during the last six months. Usually new verticals attribute lower margin during the initial period until the organic traffic is established and the acquired sources are fully optimised.
Adjusted EBITDA from continued operations
Adjusted EBITDA for the year to 30 June 2022 was $151.4 million (H1 2021: $28.7 million). Adjusted
EBITDA is a non-GAAP company specific measure that is considered to be a key performance indicator of the Group's financial performance. Adjusted EBITDA is calculated as operating profit before depreciation (including right-to-use assets amortisation), amortisation, exceptional or non-recurring costs, other operating (expense)/income, deferred contracts fair value adjustment and employee share-based payment. Proforma Adjusted EBITDA is calculated by adding the proforma deferred contract costs expenses adjustment related to the ExpressVPN acquisition. As these are non-GAAP measures, they should not be considered as replacements for IFRS measures. The Group's definition of these non-GAAP measures may not be comparable to other similarly titled measures reported by other companies. Such amounts are excluded from the following analysis:
H1 2022 H1 2021
$'000 $'000
Revenue 302,396 95,502
Cost of sales (22,156) (7,900)
Direct sales and marketing
costs (75,586) (41,096)
-------- --------
Segment result 204,654 46,506
-------- --------
Indirect sales and marketing
costs (20,815) (7,929)
Research and development
costs (12,378) (3,178)
Management, general and administrative
cost (20,057) (6,725)
-------- --------
Adjusted EBITDA 151,404 28,674
-------- --------
Proforma Deferred Contract (62,501) -
expenses adjustment
-------- --------
Proforma Adjusted EBITDA 88,903 28,674
-------- --------
Proforma Adjusted EBITDA
margin % 29.4 30.0
-------- --------
The marginal decrease in the Proforma Adjusted EBITDA margin is attributable to the lower EBITDA margin of ExpressVPN offset by the cost synergies following the acquisition on December 2021.
Operating profit
A reconciliation of Adjusted EBITDA to operating profit is provided as follows:
H1 2022 H1 2021
$'000 $'000
Adjusted EBITDA 151,404 28,674
Employee share-based payment
charge (11,811) (634)
Exceptional and non-recurring
costs (1,930) (1,702)
Depreciation and amortisation (77,711) (13,053)
Other operating (expense)/income (927) 324
Operating profit 59,025 13,609
-------- --------
Exceptional and non-recurring costs in H1 2022 comprised of $0.2 million employees onerous contract termination costs, and $1.7 million for professional services and other business combinations related costs.
Profit before tax
Profit before tax was $46.2 million (H1 2021: $10.0 million). Finance costs of $12.9 million comprised mainly of $2.6 million of interest on debt facilities (H1 2021: $3.1 million), $6.0 million of commitment fees on the TSNLI revolving facility related to the ExpressVPN acquisition (H1 2021: Nil) and $1.7 million non-cash interest on deferred consideration mainly related to the ExpressVPN acquisition.
Profit after tax
Profit after tax was $41.0 million (H1 2021: $7.5 million). Tax expenses for the period are $5.2 million (H1 2021: $2.4 million), the tax charge derives mainly from group subsidiaries' residual profits. Since the amortisation of acquired intangibles and share-based payment charges are not tax-deductible in several of the jurisdictions in which the Company operates, management believes it is appropriate to examine the effective tax rate out of Proforma Adjusted EBITDA rather than profit before tax. The effective tax rate out of Proforma Adjusted EBITDA decreased to 5.8% (H1: 2021 8.5%). The decrease is due to acquired intangibles tax deductible amortisation in some of the jurisdictions.
Cash flow
H1 2022 H1 2021
$'000 $'000
Cash flow from operations 87,783 12,578
Exceptional and non-recurring
cash outflow 2,305 2,014
Adjusted cash flow from operations 90,088 14,592
------- -------
% of Adjusted EBITDA 59.5% 50.9%
------- -------
Proforma Adjusted EBITDA 88,903 28,674
------- -------
% of Proforma Adjusted EBITDA 101.3% 50.9%
------- -------
Cash flow from operations was $87.8 million (H1 2021: $12.6 million). Adjusted cash flow from operations after adding back one-off payments was $90.1 million (H1 2021: $14.6 million), which represents a cash conversion of 101.3% from the Proforma Adjusted EBITDA. The increase of the cash conversation is a result of the growing percentage of customers that are with the Company over a year.
Net income tax payments in the period were $4.4 million (H1 2021: $2.1 million). The increase is mainly due to $3.7 million income tax prepayments paid by Israeli subsidiaries during the period compared to $1.4 million that was paid in H1 2021.
Cash outflow from investing activities of $31.5 million (H1 2021: $118.6 million) mainly comprises payments of $22.1 million for business combinations (H1 2021: $116.1) related mainly to ExpressVPN in 2022 and Webselenese in 2021, $7.6 million (H1 2021: $2.4 million) capitalised development costs and $1.8 million (H1 2021: $0.3 million) purchase of fixed assets.
Cash flow used in financing activities of $15.4 million (H1 2021: Cash flow generated from financing activities of $80.7 million) included a repayment of long-term loan principal of $10.0 million (H1 2021: $1.8 million) and $1.9 million interest (H1 2021: $0.2 million), $1.1 million (H1 2021: $0.8 million) has been received following the exercise of employee share options and $4.6 million (H1 2021: $1.4 million) were paid for the Group's leases.
Financial position
At 30 June 2022, the Group had cash of $62.9 million (31 December 2021: $27.0 million), net assets of $917.3 million (31 December 2021: $863.5 million), and net debt of $391.9 million (31 December 2021: $457.5 million). At 30 June 2022, trade receivables were $34.1 million (31 December 2021: $42.1 million).
Oded Baskind
Chief Financial Officer
12 September 2022
Consolidated statement of comprehensive income
For the six months ended 30 June 2022
Six months Six months
ended 30 ended 30
June 2022 June 2021
(unaudited) (unaudited)
Note $'000 $'000
Revenue 3 302,396 95,502
Cost of sales (22,156) (7,900)
------------- ------------
Gross profit 280,240 87,602
Selling and marketing costs (98,847) (49,106)
Research and development
costs (16,932) (3,431)
Management, general and administrative
costs (26,798) (8,727)
Depreciation and amortisation (77,711) (13,053)
Other operating (expense)/
income (927) 324
Total operating costs 5 (221,215) (73,993)
Operating profit 5 59,025 13,609
Adjusted EBITDA 5 151,404 28,674
------------- ------------
Employee share-based payment
charge (11,811) (634)
Exceptional and non-recurring
costs 5 (1,930) (1,702)
Other operating (expense)/
income (927) 324
Depreciation and amortisation (77,711) (13,053)
Operating profit 5 59,025 13,609
--------------------------------------- ---- -------------
Finance costs (12,858) (3,648)
------------- ------------
Profit before taxation 46,167 9,961
Tax charge (5,193) (2,435)
------------- ------------
Profit for the period 40,974 7,526
Other comprehensive income:
Items that may be reclassified
to profit and loss:
Foreign exchange differences
on translation of foreign
operations - -
------------- ------------
Total comprehensive profit
for the period 40,974 7,526
------------- ------------
Earnings per share attributable
to the ordinary equity holders
of the company:
Basic earnings per share
(cents) 7 11.7 3.6
Diluted earnings per share
(cents) 7 11.5 3.5
------------- ------------
*Adjusted EBITDA is a non GAAP measure and a company specific measure which is earnings before interest, tax, depreciation, amortisation, share based payment charges, other operating (expense)/ income and exceptional and non-recurring costs.
Consolidated statement of financial position
As 30 June 2022
30 June 31 December
2022 2021
(unaudited) (audited)
Note $'000 $'000
Non-current assets
Intangible assets 1,420,572 1,485,608
Property, plant and equipment 6,688 5,794
Right-of-use assets 19,832 21,880
Deferred contract costs 91,153 50,698
Deferred tax asset 2,276 2,466
1,540,521 1,566,446
------------- -----------
Current assets
Software license inventory 59 70
Deferred contract costs 70,730 35,791
Trade and other receivables 50,564 57,980
Cash and cash equivalents 62,916 26,984
184,269 120,825
Total assets 1,724,790 1,687,271
------------- -----------
Equity
Share capital 6 36 36
Additional paid in capital 885,786 883,337
Shares to be issued - 1,350
Foreign exchange differences
on translation of foreign
operations 773 773
Retained earnings 30,734 (22,051)
Total equity 917,329 8 63,445
------------- -----------
Non-current liabilities
Contract liabilities 12,877 10,885
Deferred tax liabilities 64,752 69,761
Long term lease liabilities 12,927 16,079
Deferred and contingent consideration 169,451 168,950
Loans and Borrowings 8 88,260 97,830
348,267 363,505
------------- -----------
Current liabilities
Trade and other payables 93,530 84,264
Contract liabilities 148,156 144,971
Short term lease liabilities 7,045 6,940
Deferred and contingent consideration 179,830 199,337
Onerous contract liability 373 741
Loans and Borrowings 8 19,512 19,554
Current tax liability 10,748 4,514
459,194 460,321
------------- -----------
Total equity and liabilities 1,724,790 1,687,271
------------- -----------
Consolidated statement of cash flows
For the six months ended 30 June 2022
Six months Six months
ended 30 June ended 30
2022 June 2021
(unaudited) (unaudited)
$'000 $'000
Cash flow from operating activities
Profit for the period after taxation 40,974 7,526
Adjustments for:
Amortisation of intangible assets 72,782 11,412
Amortisation of Right-to-use assets 4,111 1,336
Depreciation of property, plant and
equipment 818 305
Loss on sale of property, plant and
equipment - 96
Loss/ (Profit) on sale of intangible
assets 14 (275)
Loss from lease modification - 10
Tax charge 5,193 2,435
Interest expenses, fair value movements
on deferred consideration 13,402 3,413
Share based payment charge 11,811 634
Unrealised foreign exchange differences 608 53
-------------- ------------
Operating cash flow before movement
in working capital 149,713 26,945
Decrease/(increase) in trade and
other receivables 5,803 (281)
Decrease in software licences inventory 11 39
Increase in trade and other payables 2,849 2,157
Decrease in onerous contract liability (375) (313)
Increase in deferred contract costs (75,394) (13,960)
increase/(Decrease) in contract liabilities 5,176 (2,009)
-------------- ------------
Cash flow from operations 87,783 12,578
Tax paid net of refunds (4,425) (2,123)
-------------- ------------
Cash generated from operations 83,358 10,455
Cash flow from investing activities
Purchases of property, plant and
equipment (1,838) (342)
Proceeds from sale of property, plant
and equipment 142 -
Intangible assets acquired (393) (365)
Disposal of intangible assets 247 611
Cash paid on business combinations,
net of cash acquired (22,070) (116,073)
Capitalisation of development costs (7,609) (2,427)
-------------- ------------
Net cash used in investing activities (31,521) (118,596)
Cash flow from financing activities
Payment of leases (4,608) (1,422)
Proceeds from shareholder loan - 85,000
Proceeds from bank loan - 85,000
Proceeds from RCF 490 4,596
Debt issuance costs (526) (1,677)
Repayment of interest on Shareholder
loan - (1,275)
Repayment of Shareholder loan - (85,000)
Repayment of interest on long-term
loan (1,898) (227)
Repayment of bank loan (10,000) (1,818)
Payment of purchase of own shares - (3,299)
Exercise of options by employees 1,100 802
-------------- ------------
Net cash (used in)/generated from
financing activities (15,442) 80,680
-------------- ------------
Net increase/(decrease) in cash
and cash equivalents 36,395 (27,461)
Revaluation of cash due to changes
in foreign exchange rates (463) (18)
Cash and cash equivalents at beginning
of year 26,984 49,912
-------------- ------------
Cash and cash equivalents at end
of period 62,916 22,433
-------------- ------------
Notes
1. General information
The financial information provided is for Kape Technologies Plc and its subsidiary undertakings (together the "Group", "the Company" or "Kape") in respect of the six months ended 30 June 2022. The Company is incorporated in the Isle of Man.
Kape is a leading 'privacy-first' digital security software provider to consumers. Through its range of privacy and security products, Kape focuses on protecting consumers and their personal data as they go about their daily digital lives. Kape has c.7 million paying subscribers, supported by a team of over 1,000 people across ten locations worldwide. Kape has a proven track record of revenue and EBITDA growth, underpinned by a strong business model which leverages our digital marketing expertise. Through its subscription-based platform, Kape has fast established a highly scalable SaaS-based operating model, geared towards capitalising on the vast global consumer digital privacy market.
The Board of Directors approved this interim financial information on 11 September 2022.
2. Basis of preparation
This interim consolidated financial information has been prepared in accordance with UK adopted international accounting standards (collectively IFRS). They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 31 December 2021 Annual Report. The financial information for the half years ended 30 June 2022 and 30 June 2021 does not constitute statutory accounts.
The annual financial statements of the Group were prepared in accordance with UK adopted international accounting standards (collectively IFRS).
The comparative financial information for the year ended 31 December 2021 included within this report does not constitute the full statutory annual financial statements ("Annual Report") for that period. The statutory Annual Report and Financial Statements for 2021 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for the year ended 31 December 2021 was unqualified and did not draw attention to any matters by way of emphasis.
The Group has applied the same accounting policies and methods of computation in its interim consolidated financial statements as in its 2021 Annual Report, except for those that relate to new standards and interpretations effective for the first time for periods beginning on (or after) 1 January 2022 and are adopted in the 2022 financial statements.
There are a number of standards, amendments to standards, and interpretations that are effective in future accounting periods that the Group has decided not to adopt early. The following amendments are effective for the period beginning 1 January 2022:
-- IAS 37 (Amendment Onerous Contracts - Cost of Fulfilling a Contract) . clarifies that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the contract and an allocation of other costs directly related to fulfilling contracts. Before recognising a separate provision for an onerous contract, the entity recognises any impairment loss that has occurred on assets used in fulfilling the contract. The amendment is effective for annual reporting periods beginning on or after 1 January 2022. The adoption of this standard did not have a material impact on the Group's financial statements.
-- Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41). The amendment is effective for annual reporting periods beginning on or after 1 January 2022. The adoption of this standard did not have a material impact on the Group's financial statements.
-- References to Conceptual Framework (Amendments to IFRS 3) . Minor amendments were made to IFRS 3 Business Combinations to update the references to the Conceptual Framework for Financial Reporting and add an exception for the recognition of liabilities and contingent liabilities within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets and Interpretation 21 Levies. The amendments also confirm that contingent assets should not be recognised at the acquisition date. The amendment is effective for annual reporting periods beginning on or after 1 January 2022. The adoption of this standard did not have a material impact on the Group's financial statements.
There are a number of standards, amendments to standards, and interpretations which have been issued that are effective in future accounting periods that the group has decided not to adopt early.
-- In January 2020, the IASB issued amendments to IAS 1, which clarify the criteria used to determine whether liabilities are classified as current or non-current. These amendments clarify that current or non-current classification is based on whether an entity has a right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period. The amendments also clarify that 'settlement' includes the transfer of cash, goods, services, or equity instruments unless the obligation to transfer equity instruments arises from a conversion feature classified as an equity instrument separately from the liability component of a compound financial instrument. The amendments are effective for annual reporting periods beginning on or after 1 January 2023. The Group is currently assessing the potential impact of this amendment on its financial statements, however, such impact if any, is not expected to be material.
-- Definition of Accounting Estimates (Amendments to IAS 8). The amendment to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors clarifies how companies should distinguish changes in accounting policies from changes in accounting estimates. The distinction is important, because changes in accounting estimates are applied prospectively to future transactions and other future events, but changes in accounting policies are generally applied retrospectively to past transactions and other past events as well as the current period. The amendment is effective for annual reporting periods beginning on or after 1 January 2023. The Group is currently assessing the potential impact of this amendment on its financial statements, however, such impact if any, is not expected to be material.
-- Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12) . The amendments to IAS 12 Income Taxes require companies to recognise deferred tax on transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. They will typically apply to transactions such as leases of lessees and decommissioning obligations and will require the recognition of additional deferred tax assets and liabilities. The amendment is effective for annual reporting periods beginning on or after 1 January 2023. The Group is currently assessing the potential impact of this amendment on its financial statements, however, such impact if any, is not expected to be material.
-- Disclosure of Accounting Policies, Amendments to IAS 1 and IFRS Practice Statement 2. The IASB amended IAS 1 to require entities to disclose their material rather than their significant accounting policies. The amendments define what is 'material accounting policy information' and explain how to identify when accounting policy information is material. They further clarify that immaterial accounting policy information does not need to be disclosed. If it is disclosed, it should not obscure material accounting information. The amendment is effective for annual reporting periods beginning on or after 1 January 2023. The Group is currently assessing the potential impact of this amendment on its financial statements, however, such impact if any, is not expected to be material.
The Group does not expect any other standards issued, but not yet effective, to have a material impact on its financial statements.
After making enquiries, the directors have concluded that the Group has adequate resources to continue operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly consolidated unaudited financial statements.
3. Disaggregation of revenue
Six months Six months
ended 30 ended 30
June 2022 June 2021
(unaudited) (unaudited)
$'000 $'000
Sale of Digital Security, endpoint protection
and PC performance
products 21,385 18,479
Sale of Digital Privacy software solutions 253,510 49,552
Sale of Digital Content and software distribution
services 27,501 27,471
----------- -----------
302,396 95,502
----------- -----------
Revenues from software and SAAS products offering security, malware protection and PC performance are generated from the Digital Security CGU (Cash Generating Units- "CGU"), revenues from provision of Digital privacy software solutions are generated from the Digital Privacy CGU, revenues from Digital Content and software distribution services are generated from Digital Content CGU.
The following table presents our revenues disaggregated by the timing of revenue recognition in accordance with our reporting segments:
Six months ended 30 June Six months ended 30 June
2022 (unaudited) 2021 (unaudited)
(USD, in thousands) (USD, in thousands)
Digital Digital Digital Total Digital Digital Digital Total
Security Privacy Content Security Privacy Content
---------- --------- --------- -------- ---------- --------- --------- -------
Revenue recognised
over a period 3,040 233,408 - 236,448 2,566 31,048 - 33,614
---------- --------- --------- -------- ---------- --------- --------- -------
Revenue recognised
at a point in
time 18,345 20,102 27,501 65,948 15,913 18,504 27,471 61,888
---------- --------- --------- -------- ---------- --------- --------- -------
Total 21,385 253,510 27,501 302,396 18,479 49,552 27,471 95,502
---------- --------- --------- -------- ---------- --------- --------- -------
4. Segmental information
Segment revenues and results
The Group's reportable segments are strategic business units that offer different products and services. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the management team including the Chief Executive Officer and the Chief Financial Officer. The Group operates three reportable segments:
-- Digital Security - comprising software and SaaS products offering security, endpoint protection and PC performance.
-- Digital Privacy - comprising virtual private network ("VPN") solutions and other privacy SaaS products.
-- Digital Content - comprising digital platforms which provide reviews and content.
Six months ended 30 June Digital Digital Digital
2022 Security Privacy Content Total
$'000 $'000 $'000 $'000
Revenue 21,385 253,510 27,501 302,396
Cost of sales (1,469) (20,687) - (22,156)
Direct sales and marketing
costs (11,984) (40,630) (22,972) (75,586)
--------- -------- -------- --------
Segment result 7,932 192,193 4,529 204,654
Central operating costs (53,250)
--------
Adjusted EBITDA(1) 151,404
Depreciation and amortisation (77,711)
Employee share-based payment
charge (11,811)
Other operating (expense)/income (927)
Exceptional or non-recurring
costs (1,930)
--------
Operating profit 59,025
Finance costs (12,858)
--------
Profit before tax 46,167
Taxation (5,193)
--------
Profit from the period 40,974
Six months ended 30 June Digital Digital Digital
2021 Security Privacy Content Total
$'000 $'000 $'000 $'000
Revenue 18,479 49,552 27,471 95,502
Cost of sales (1,279) (6,621) - (7,900)
Direct sales and marketing
costs (10,465) (15,257) (15,374) (41,096)
--------- -------- -------- --------
Segment result 6,735 27,674 12,097 46,506
Central operating costs (17,832)
--------
Adjusted EBITDA(1) 28,674
Depreciation and amortisation (13,053)
Employee share-based payment
charge (634)
Other operating (expense)/income 324
Exceptional or non-recurring
costs (1,702)
--------
Operating profit 13,609
Finance costs (3,648)
--------
Profit before tax 9,961
Taxation (2,435)
--------
Profit from the period 7,526
(1) Adjusted EBITDA is a company-specific measure which is calculated as operating profit before depreciation (including right-to-use assets amortisation), amortisation, exceptional or non-recurring costs, other operating (expense)/ income and employee share-based payment charges as set out in note 5.
5. Operating Profit
Adjusted EBITDA
Adjusted EBITDA is calculated as follows:
Six months Six months
ended 30 ended 30
June 2022 June 2021
$'000 $'000
Operating profit 59,025 13,609
Depreciation and amortisation 77,711 13,053
Other operating expense/(income) 927 (324)
Employee share-based payment
charge 11,811 634
Exceptional and non-recurring
costs:
Non-recurring staff and restructuring
costs 181 1,232
Exceptional professional services
costs 1,749 470
---------- ----------
Adjusted EBITDA 151,404 28,674
---------- ----------
Operating costs
Operating costs are further analysed as follows:
Six months Six months Six months Six months
ended 30 ended 30 ended 30 ended 30
June 2022 June 2022 June 2021 June 2021
Adjusted Total Adjusted Total
$'000 $'000 $'000 $'000
Direct sales and marketing
costs 75,586 75,586 41,096 41,096
Indirect sales and marketing
costs 20,815 23,261 7,929 8,010
---------- ---------- ---------- ----------
Selling and marketing costs 96,401 98,847 49,025 49,106
--------------------------------------- ---------- ---------- ---------- ----------
Research and development
costs 12,378 16,932 3,178 3,431
Management, general and administrative
cost 20,057 26,798 6,725 8,727
Other operating expense/(income) - 927 - (324)
Depreciation and amortisation 7,350 77,711 3,110 13,053
---------- ---------- ---------- ----------
Total operating costs 136,186 221,215 62,038 73,993
---------- ---------- ---------- ----------
Adjusted operating costs exclude share-based payment charges and employer costs related to management share-option exercises, onerous contract costs related to employee termination costs, professional services related to business combinations, other operating expense/(income) and amortisation of acquired intangible assets.
6. Shareholder's equity
Ordinary share capital as of 30 June 2022 amounted to $35,951 (30 June 2021: $23,442; 31 December 2021: $35,875).
The number of shares in issue as of 30 June 2022 was 359,512,186 (30 June 2021: 234,421,485; 31 December 2021: 358,747,497).
As part of the LTMI Holdings acquisition in 2019, the Company undertook to issue 42,701,548 new ordinary shares ("Consideration Shares") to be paid in three phases. LTMI co-founders Andrew Lee and Steve DeProspero would each been entitled to be issued 19,247,723 Consideration Shares representing approximately 10.4% of the enlarged issued share capital of Kape, of which 5,250,363 were issued on completion, 10,498,020 were due to be issued on the first anniversary of completion and 3,499,340 would have been issued on the second anniversary of completion. The balance of the Consideration Shares, being 4,206,102 in aggregate, are to be issued to four senior executives of PIA, of which 1,147,333 were issued on completion, 2,294,077 were issued on the first anniversary of completion and 764,692 issued on January 2022.
As of 30 June 2022, the Company held in treasury a total of 4,262,799 ordinary shares of $0.0001 (30 June 2021: 9,806,501; 31 December 2021: 9,800,809). During the six months ended 30 June 2022, 1,538,010 ordinary shares of $0.0001 were transferred out of treasury (30 June 2021: 712,019) and Nil from the Employee Benefit Trust to satisfy the exercise of options by the Company employees (30 June 2021: 600,000, 31 December 2021: 1,200,000).
During the six months ended 30 June 2022 a total of Nil of ordinary shares of $0.0001 par value were transferred into treasury (30 June 2021: 804,663, 31 December 2021: 901,823).
The Kape Technologic Plc Employee Benefit Trust holds 4,000,000 Ordinary Shares (30 June 2021: 600,000; 31 December 2021: Nil), the voting rights to which have been waived.
7. Earnings per share
Basic profit per share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.
Six months Six months
ended 30 ended 30
June 2022 June 2021
Cents Cents
Basic earnings per share 11.7 3.6
Diluted earnings per share 11.5 3.5
Adjusted basic 34.7 9.2
Adjusted diluted 34.1 9.0
Adjusted earnings per share is a non-GAAP measure and therefore the approach may differ between companies. Adjusted earnings have been calculated as follows:
Six months Six months
ended 30 ended
June 2022 30 June
2021
$'000 $'000
Profit for the period 40,974 7,526
Post tax adjustments:
Employee share-based payment
charge 12,488 721
Exceptional and non-recurring
costs 1,843 1,512
Amortisation on acquired
intangible assets 63,495 9,553
Other operating expense/(income) 948 (276)
Finance cost on deferred
consideration and leases 2,111 392
---------- ----------
Adjusted profit for the year 121,859 19,428
---------- ----------
Number Number
Denominator - basic:
Weighted average number of equity
shares for the purpose of earnings
per share 350,863,942 210,746,363
Adjustments for calculation of diluted
earnings per share:
Impact of potentially dilutive shares
related to employee options 6,570,482 4,522,219
Denominator - diluted:
Weighted average number of equity
shares for the purpose of diluted
earnings per share 357,434,424 215,268,582
The difference between weighted average number of ordinary shares used for basic earnings per share and the diluted earnings per share 6,570,482 (H1 2021: 4,522,219) being the effect of all potentially dilutive ordinary shares derived from the number of share options granted to employees.
8. Loans and Borrowings
Bank Loan
$'000
At 31 December 2021 117,384
Revolving credit facility 490
Debt issuance costs (526)
Interest expenses 2,593
Interest paid (1,898)
Net foreign exchange (271)
Repayment of loan (10,000)
At 30 June 2022 107,772
---------
Current portion 19,512
---------
Non-Current portion 88,260
---------
Bank loan
(a) General
On 28 May 2021 the Company agreed with Bank of Ireland, Barclays Bank PLC, Citi Commercial Bank, Citizens Bank, BNP Paribas and Leumi Bank (together, "the Banks"), to replace the Old Term Facility, RCF and Shareholder loan with a new senior secured bank facilities of up to $220 million ("New Debt Facilities"). The New Debt Facilities comprise a $120 million senior secured term facility (the "Term Facility"), a $10 million revolving credit facility (the "RCF") and a $90 million uncommitted acquisition facility (the "Uncommitted Acquisition Facility"). Bank of Ireland is the agent bank. The New Debt Facilities have a three-years term with an option to extend the term by up to an additional two years. 50% of the Term Facility will be amortised on a quarterly basis across 36 months starting September 2021. The New Debt Facilities carry an opening Margin of 2% above Applicable Reference Rate per annum.
On 15 December 2021, the Banks gave their consent to the ExpressVPN Acquisition and extended their revolving credit facility to Kape from $10 million to $80 million. The revolving credit facility can be utilized according to Kape's needs.
Term Facility
The term facility comprised from $97.3 million after deducting commissions and other direct costs of the Term Facility. Commissions and other direct costs of the Term Facility have been offset against the principal balance and are amortised throughout the loan.
The Term Facility carries an interest rate of 3 months Applicable Reference Rate, which is USD or EUR LIBOR or GBP SONIA, (as of the beginning of the relevant period) plus the applicable Margin.
The applicable Margin is linked to the Adjusted Leverage, tested at the end of each quarter for the preceding 12 months. Until 15 December 2021, if the Adjusted Leverage was be greater than 2 or less than 1 the applicable Margin changed to 2.25% or 1.85%, respectively. Following the ExpressVPN Acquisition and the Banks consent, the applicable Margin range has been modified. If greater than or equal to 3:1 the coupon will be 2.75% per annum, if greater than or equal to 2.5:1 but less than 3:1, then the coupon will be 2.5% per annum, if greater than or equal to 2.0:1 but less than 2.5:1, then the coupon will be 2.25% per annum, if greater than or equal to 1.0:1 but less than 2.0:1, then the coupon will be 2.0% per annum if less than 1:1 then the coupon will be 1.85% per annum, in each case, on funds drawn.
RCF
A $80 million revolving credit facility, that carries a commitment fee for the unused facility of 35% of the applicable Margin and interest rate as of the Term Facility for the used facility. As of the reporting date the total credit facility drawn amount is $10.49 million.
(b) Security
The Debt Facilities are secured by first ranking security over all assets (including material Intellectual Property) of Kape Technologies Plc ("Parent") and its material subsidiaries ("Obligors") and over the shares in all Obligors (other than the Parent). The formed or acquired companies as part of the ExpressVPN acquisition were excluded as obligors, with the exception of a charge over the shares of Kape Acquisition Pte. Ltd, the buyer of the ExpressVPN business.
(c) Loan Covenants
The Group is required to comply with the following financial covenants:
-- The ratio of Adjusted EBITDA to Net Finance Charges ("Interest Cover") shall not be less than 4.0x in respect of any Relevant Period.
-- The ratio of Total Net Debt on the last day of the relevant period to Adjusted EBITDA in respect of that Relevant period ("Adjusted Leverage"), shall not exceed 2.5x for the first 1 relevant period, from and including 30 June 2020 to and including 30 September 2021, 3.5x from and including 31 December 2021 to and including 30 September 2022, 2.5x from and including 31 December 2022 to and including 31 March 2023 , 2.0x from and including 30 June 2023 and each Relevant Period thereafter.
As of 30 June 2022, the Group has met the financial covenants as follows:
-- Interest Cover: 8
-- Adjusted Leverage: 2.40
30 June 2022 Carrying Contractual 3 months Between Between More
amount cash flow or less 3-12 months 1-5 years than
5 years
$'000 $'000 $'000 $'000 $'000 $'000
Bank Loan 107,772 109,703 5,000 15,000 89,703 -
-------------- --------- ------------ --------- ------------- ----------- ---------
9. Related party transactions
The Group's majority shareholder is Unikmind Holdings Limited ("Unikmind"), registered in Isle of Man, which owns 54.9% of the Company's shares. Mr. Teddy Sagi is the sole ultimate beneficiary of Unikmind Holdings Limited.
On 14 September 2021, TS Next Level Investments Limited ("TSNLI"), an affiliate of Unikmind, entered into binding commitment letters with the Group ("Deferred Consideration Facility"), subject to limited conditions, to make available to Group, if required, loan facilities of up to $345 million in aggregate in connection with Kape's obligation to pay the Deferred Consideration as part of the ExpressVPN acquisition. Furthermore, TSNLI provided a Refinancing Facility of up to $130 million available until the Group achieved the club of banks consent to the acquisition.
The Deferred Consideration Facility, if utilised, will carry a variable coupon, depending on the leverage ratio: if greater than or equal to 3:1 the coupon will be 4.75% per annum, if greater than or equal to 2:1 but less than 3:1, then the coupon will be 4.25% per annum and if less than 2:1 then the coupon will be 4.00% per annum, in each case, on funds drawn. The rates set out above will each increase by 1.00% per annum on and from the second anniversary of the completion of the ExpressVPN acquisition and will increase by a further 1.00% per annum on and from the third anniversary of the completion of the ExpressVPN acquisition.
The Deferred Consideration Facility also carried an arrangement fee of 1.5% of the total commitments, paid in December 2021 following the completion of ExpressVPN acquisition, and a commitment fee accruing at the rate of 3.50% per annum on undrawn commitments, payable on the earlier of the commitments being cancelled or utilised. Should Kape find an alternative source of financing to fund the payment of the Deferred Consideration or to refinance the Deferred Consideration Facility, the commitment fees will only be payable pro rata for the period during which the commitment under the Deferred Consideration Facility is in place.
The Deferred Consideration Facility also includes certain customary obligations on Kape in relation to, inter alia, TSNLI's costs and expenses and in relation to taxes.
During the period the following transactions were carried out with related parties:
Six months Six months
ended 30 ended 30
June 2022 June 2021
$'000 $'000
Technical support services to end customers
and administration services provided by
common controlled companies (18) (145)
Office expenses to common controlled companies (36) (27)
Amortisation of right-of-use assets with
common controlled companies related to
office leases (363) (209)
Interest expenses from lease liabilities
to common controlled companies related
to office leases (27) (14)
Other operating income from Lease modification
to common controlled companies - 10
Software fees provided by common controlled
company (24) -
Issuance cost amortization for facility
revolver provided by shareholder (1,781) -
Shareholder facility revolver commitment
fees (5,988) -
Interest expenses from shareholder short-term
loan and debt facility - (2,125)
(8,237) (2,510)
---------- ----------
10. Subsequent Events
Kape has signed an option agreement (the "Prepayment Agreement") with Peter Burchhardt and Dan Pomerantz, the co-founders of ExpressVPN, that Kape may (but is not obliged to) elect to prepay on or before 15 December 2022, at a discount to its headline value, all or any of the deferred cash consideration. Pre-payments will attract a discount (calculated on an annualised basis from the date of prepayment to the date on which payment is otherwise due under the acquisition agreement) of 8.939%, provided that on or before 15 December 2022 Kape both prepays all the deferred consideration (after application of any applicable discount) and enters a new or revised bank borrowing facility of not less than $345 million. If either of such conditions is not met, the annualised discount rate applicable to any prepayments made falls to 6.939% and only prepayments of up to $172.5 million will benefit from a discount. Any prepayment done will cause a reduction in the commitment fee under the Deferred Consideration Facility agreed to be made available to the Company by TS Next Level Investments Limited at the time of the acquisition, which accrues at 3.50% per annum.
11. Cautionary statement
This announcement contains certain forward-looking statements relating to Kape Technologies plc ('the Group'). The Group considers any statements that are not historical facts as "forward-looking statements". They relate to events and trends that are subject to risk and uncertainty that may cause actual results and the financial performance of the Group to differ materially from those contained in any forward-looking statement. These statements are made by the directors in good faith based on information available to them and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.
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